CB battle may be at end
By Deborah Adamson
Advertiser Staff Writer
Today could be the end of Central Pacific Financial's year-long battle to take over the parent of City Bank.
Central Pacific CEO Clint Arnoldus said one month ago that he is prepared to walk away from his bank's $400 million offer to buy CB Bancshares if the board of the rival bank refused to negotiate by April 15.
Central Pacific officials, who said they will issue a statement today, repeated as recently as Monday their willingness to give up on the merger. City Bank didn't return calls yesterday, but officials said Monday that they were still considering their options.
Last spring, Central Pacific launched a hostile takeover of CB Bancshares, offering about $70 a share, or a 51 percent premium over the share price before the offer. City Bank executives refused to negotiate, arguing that the offer was too low and a merger would be bad for customers and employees.
"They should just stop bothering City Bank," said Alejandro Ramos, a City Bank customer in Kalihi. "I'm not saying Central Pacific people are no good. But I'm used to the people at City Bank already. I'm comfortable."
Wall Street doesn't believe the merger has a chance. Even though Central Pacific recently sweetened the offer to about $87 a share, the price of CB Bancshares stock has remained well below that level. It closed yesterday at $70.
"I think there's little chance the deal comes together," said Joe Morford, an analyst at RBC Capital Markets in San Francisco. "The issues are beyond (the offer price). In City Bank's perspective, the combination won't be in the best interest of Hawai'i."
Even if the deal dies, fallout from the fight remains.
Central Pacific, the state's third largest commercial bank, spent $10 million to pursue City Bank. City Bank has put out nearly $7 million to defend itself.
Moreover, the lawsuits will continue, said Dan Devaney, a corporate attorney experienced in mergers at Cades Schutte LLP in Ho-nolulu.
One shareholder lawsuit filed in April 2003 accuses City Bank's board of directors of not looking out for the best interest of stockholders by refusing to negotiate with Central Pacific Bank.
The merger deadline "doesn't end the case," said James Bickerton, a Honolulu attorney leading the lawsuit. "If (the merger) is going to just collapse because there aren't even negotiations, then our lawsuit will proceed to the next step, which is the trial."
His lawsuit argued that City Bank's directors have a duty to shareholders to consider all lucrative deals, which includes Central Pacific's offer.
"How will you know if you're getting a deal if you don't talk to these people?" Bickerton said.
City Bank has said it is worth more money than what Central Pacific is offering since the bank has been reporting strong profits. This week, it said first-quarter profits more than doubled to $9.8 million while operating revenue rose by 20 percent to $28.7 million.
But Bruce Sherman, chief executive officer of Private Capital Management, which owns about 10 percent of each bank, believes City Bank is getting a good deal. Shares of City Bank's parent were trading in the 40's despite their earnings performance. It was only after Central Pacific offered to buy the company that the stock jumped.
Sherman said he would be disappointed if City Bank directors decide not to at least consider the bid.
"The failure of City Bank's board to negotiate would be indicative of an entrenched management looking out for its self interest, and probably more importantly, would create a tremendous distaste among institutional shareholders Mainland side," he said. "I would hope that they have talks before this gets any uglier."
Asked whether his Naples, Fla.-based investment firm is considering suing the company, Sherman said "all options are available."
For now, Private Capital Management plans to withhold its votes when City Bank's board of directors come up for re-election. Investors use this strategy to kick out directors with whom they're displeased and replace them with ones they like. Since City Bank has a staggered board — out of 10 directors only three or four come up for re-election every year — it would take three years to replace the entire board.
"The shareholders own the company, not management," Sherman said.
While City Bank's board is feeling pressure from shareholders, the same might not be true about Central Pacific CEO Arnoldus.
RBC's Morford said he doesn't think Arnoldus will face consequences if the merger deal falls apart, even in an era of greater CEO accountability and shareholder activists.
"I think he has the support of the board moving forward," he said.
There also shouldn't be any lasting damage to the public image of both banks, as long as the spat is resolved amicably.
"We are a rather forgiving population here," said Becky Ward, president of Ward Research in Honolulu, a public opinion polling firm. "It doesn't mean we forget, but we are fairly forgiving when there's a reasonable resolution."
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
